California lawmakers approved today legislation aimed at strengthening the rights of homeowners facing foreclosure, leaving the fate of the heavily debated proposal in the hands of Gov. Jerry Brown.
The proposal, approved over opposition from banking and business interests, would make California the first state to put into state law several significant provisions contained in a national settlement with five large banks. It is part of a package of bills backed by state Attorney General Kamala Harris.
"I think we all should feel very good that we have done something that was just the right thing to do," Harris said at a press conference following the vote.
The legislation, contained in Assembly Bill 278 and Senate Bill 900, cleared both houses this afternoon. The Assembly easily approved the majority-vote measure, 53-25, with one Republican and one independent joining Democrats in voting yes, and cleared the Senate on a party-line vote of 25-13.
The bill targets "dual tracking" by prohibiting lenders from starting the home foreclosure process while a loan modification is being negotiated and seeks to curb the use of robo-signed, unverified documents that can speed up the foreclosure process. It also provides homeowners with some legal recourse, such as the ability to seek an injunction blocking the sale of their foreclosed home, and requires that large financial institutions give borrowers negotiating a loan modification a single point of contact for dealing with their home financing issue. Institutions that foreclosed on fewer than 175 homes the previous year would be exempt from some parts of the law.
The provisions in the bill that were part of the national settlement, which already apply to the five banks involved in that agreement, would take effect for other institutions Jan. 1, 2013, with some provisions sunsetting after five years.
Language approved today was crafted by a Democrat-controlled two-house conference committee that was created after opposition from financial institutions threatened to derail the original bill.
Legislative Democrats praised the conference committee report as a strong compromise that will help homeowners while keeping the economy on track. Sen. Ellen Corbett, D-San Leandro, said it would "give people facing foreclosure a fighting chance" and "help people cut through the red tape" when dealing with lenders.
Some Republicans opposing the bill in the Senate said they support the goal of protecting homeowners, but voiced concerns about provisions allowing borrowers to take legal action against thier lenders under the law. They said the final language, which as a conference committee report could not be amended, created uncertainty for the markets and gave borrowers too much leeway to seek coverage of attorneys fees.
"This will be a field day for the trial attorneys," said Sen. Doug LaMalfa, R-Richvale. "That doesnt serve homeowners. That doesn't serve regenerating the housing market. It doesn't help."
Representatives from a coalition pushing for the changes said while the proposal approved today provides more limited protections than they first sought, they are happy to see several key elements make it into the final language.
"It's good enough and it's probably much better than good enough," Rick Jacobs, chair and founder of Courage Campaign, said at a press conference held before the vote.